Reverse Mortgage Warning

A reverse mortgage may be good for some and bad for others. A warning from The Financial Industry Regulatory Authority came out on Thursday to encourage seniors to look into all of their option before making a final decision. Below is the summary of the warning.

The Financial Industry Regulatory Authority urged senior citizens to weigh their options before using a reverse mortgage for additional retirement income.The Financial Industry Regulatory Authority was formed by a merger of the NASD and some regulatory functions of NYSE Group Inc. They warned that a reverse mortgage, which is an interest-bearing loan secured by the equity in a home may jeopardize their financial futures.

A reverse mortgage allows a bank to make payments to a homeowner instead of the homeowner making payments to a bank. The loan is repaid, with interest, when the borrower sells the house, moves out or dies. Reverse mortgages have very high fees, usually about 7 percent of the home’s value.They can also make it difficult for homeowners to leave the property to their heirs.The warning notes that, in some cases, those who sell the mortgages may profit from the their sale, giving them twice the incentive to talk someone into a loan they may not need.

Still, as foreclosure rates continue to rise amid the subprime-mortgage crisis, some homeowners who have built up equity in their home may consider reverse mortgages their best option against losing it.